Vodafone to buy German cable firm Kabel Deutschland

SYNERGIES:Vodafone would pay 87 euros per share to expand its package of TV, fixed-line and broadband services for its mobile customers

Reuters, LONDON and FRANKFURT

Vodafone has agreed to buy Germany’s largest cable operator Kabel Deutschland for 7.7 billion euros (US$10 billion), betting on TV and fixed-line services in its biggest deal since 2007.

Announcing its second major acquisition for a European fixed-line network in 12 months, Vodafone said it would pay 87 euros per share for the group to enable it to offer more competitive packages with TV, fixed-line and broadband services to its mobile customers.

However, the world’s second-largest mobile operator, following up its acquisition of Cable & Wireless Worldwide, is paying a rich price for the German firm and its 8.5 million homes, which it considered buying before it went public in March 2010 at 22 euros per share.

One trader who asked not to be named said the offer, Vodafone’s biggest since a 2007 Indian acquisition, valued Kabel Deutschland at 12 times enterprise value against estimated core earnings this year, a 35 percent premium to the sector.

However, this falls to 8.5 times when taking into consideration the synergies Vodafone expects to extract.

“We believe this is a decent deal for Vodafone,” the trader said.

Shares in the group had been trading at 63 euros before Vodafone’s initial interest was reported in February.

The UK-based company was forced to raise its offer in the last week after John Malone’s Liberty Global entered the fray, forcing it to up the stakes or face losing ground to Liberty’s own cable operator, Unity Media, and to Deutsche Telekom.

“The combination of Vodafone Germany and Kabel Deutschland will greatly enhance our offerings in response to those needs,” he said.

The board of Kabel Deutschland said it expected to recommend the offer to its shareholders, although some analysts thought Liberty Global could still return with a counteroffer even though it would likely face high regulatory barriers.

“There remains the possibility of a counteroffer from Liberty Global; however, we believe Liberty’s appetite may be tempered by the significant regulatory risks of such a transaction,” analysts at JPMorgan said in a note.

The combination of Vodafone and Kabel Deutschland will result in a group with 11.5 billion euros of revenue in Germany, from 32.4 million mobile customers, 5 million broadband and 7.6 million TV customers.

Vodafone said it expected synergies from the deal to exceed an annual 300 million euros before integration costs, by the fourth full-year post completion.

Vodafone also believes there is the potential for revenue synergies of 1.5 billion euros from cross-selling products and improved customer loyalty.

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